inflationary pressures
A draft policy document published on 1 June by the Kenya Revenue Authority (KRA) proposes taxing everything from music, e-commerce, cloud storage to transport hailing platforms.
- The move follows a new raft of tax measures introduced in October 2018 which included taxes on mobile money and other telco services.
- While some taxes such as mobile money were easy to implement because there are few players in the market, the digital economy taxes have been harder to collect. Part of the reason is a broad definition of what constitutes a “digital economic activity.”
- The draft policy follows a notice in late April that notes: “some businesses engaged in trading on digital platforms are not charging VAT (Value Added Tax) on transactions made through their platforms.”
Lawsuit against the government
In March, the Law Society of Kenya sued the government over the taxes, citing the legality of the process as well as the probable violation of citizen’s rights.
- “A government policy to increase the cost of such a basic necessity...discriminates against those without access to the internet on the basis of financial status and social origin,” part of the petition read.
- In late May, the country’s copyright body told DJs who had been live-streaming on different platforms that they would need to “acquaint themselves with terms and conditions of service of the platforms…and comply including for the music usage locally.”
Retaliatory measures in response
In September 2019, Uber and Google representatives in Nairobi asked the country’s legislature to clarify the new laws, and warned that the East African nation risked triggering retaliatory measures with other countries. Such taxes are notoriously hard to implement, primarily because multinationals fall under multiple jurisdictions.
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“There are two issues here: countries’ appetite to widen their tax revenue, by any means necessary, even if the cost is inadvertently passed on to the consumer,[…]and how to tax the digital economy and particularly how governments outside of where the big tech players are registered, can get a slice of the massive digital economy cake,” Nanjira Sambuli, a policy analyst and board member at the UN’s Digital Impact Alliance, told The Africa Report.
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Other experts fear that the new tax regime will hurt small businesses and lead to more job losses. A former senior government official, Bitange Ndemo, said in a webinar in early May that the new taxes would “lead to more job losses,” as small enterprises would “rather walk away than put up with such punitive taxes.”
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He proposed, instead, a continent-wide approach to taxation, partially because the internet had brought more benefits to the country than the taxes it could potentially collect.
Bottom Line: While the new policy will not take effect at least until early 2021, the current global economic climate makes it unlikely that it would not affect Kenya’s digital enterprises.
The complexities of implementing it will also be compounded by current trade negotiations between the East African nation and the United States that include the central issues of copyright and the digital economy.
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